Australian Dollar Forecast: Will AUD Continue to Strengthen?

At the time of writing this article the Australian dollar has had a pretty solid week of performance, with the interbank levels hitting 0.6560 against USD, 0.5983 against EUR and 0.5378 against GBP.

The strong run of form continues despite further negative comments from Reserve Bank of Australia (RBA) Governor Philip Lowe this morning, where he once again highlighted a fairly bleak outlook for the Australian economy and cited further concerns that the economic hangover bought about by COVID-19 will take a long time to shift.

Lowe highlighted that until a medical breakthrough occurs the Australian economic recovery will be slow, and that confidence in the Australian economy is currently very low, however that there will not be any tightening of fiscal policy until he starts to see robust growth.

This news didn’t have too much impact on the Australian dollar forecast for exchange rates as it kind of paints a similar picture to most other central bank outlooks around the world, and even poor economic data has seemingly come to be expected by investors and speculators at present.

Australian Dollar Forecast: AUD to USD

Following a huge drop off in March, AUD USD exchange rates have virtually recovered back to levels seen back in late February and sit just below the 0.66 market rate. Covid-19 fears had led tto a huge sell off in those currencies deemed as ‘riskier’ and as a result AUD dropped by over 12% in a very short period of time.

With Australia seeming to have their lockdown exit strategy in full swing and so far not having a huge number of cases or deaths resulting from coronavirus it does seem that markets are once again confident in entering into the Australian Dollar and as a result we have seen a good run of form.

AUD to EUR

A similar story for Australian Dollars to Euros and an almost identical chart to that of the USD as mentioned above. Exchange rates had dropped from 0.61 down into the 0.53s back in March, which is also roughly 12%, however we have had a solid recovery since and now sit just below 0.60 at the time of writing the article.

This pairing has further room to the upside if the Australian economy and lockdown exit has no further setbacks. In is no secret that several economies within the Eurozone are struggling and having a lockdown along with very little tourism to kick start the summer season will not have done them any favours.

With there being many bouts of bickering between the bloc, it does seem that any fiscal decisions to help lift the Eurozone out of this crisis may take a little longer than they may elsewhere, so there could be some potentially large problems on the horizon for the Eurozone and indeed the Euro may weaken further if we start to see the potential problems become a reality.

AUD to GBP

A slightly differing chart but the overall story is the same for AUD GBP exchange rates. It was early April where we saw the lowest point and AUD GBP entering the 0.48s for a very short period. Roll forward 6 weeks and we have seen a roughly 10% gain for the Australian Dollar against the pound with the price almost consistently gaining since the start of May.

One thing that really is hanging over the head of Sterling exchange rates is the ongoing saga with Brexit, and the fact that the British Government still has to make a decision in June as to whether to look to extend the current leave date of December 31st or to carry on and either coble together a deal with the EU in the final 6 months or to leave with no deal.

It is this very matter that seems to be casting a grey cloud over the pound at present, and those that have been watching AUD GBP exchange rates over the past few years will be aware that the mere mention of no deal Brexit has historically led to sterling weakness.

There is one more round of negotiations in June and then Parliament in the U.K will decide, if it looks like very little progress has still to be made on a deal and the decision is not to use the extension then no deal Brexit may become a well coined phrase again and we may see the pound suffer as a result.

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